FCC Deletes, Modernizes, Streamlines Cable Rate Regulation

At today's Commission open meeting, Chairman Brendan Carr's IN RE: DELETE, DELETE, DELETE initiative bore fruit when the agency adopted a Report and Order providing the cable industry with long-overdue relief on the rate regulation front. As long as Section 623 of the Communications Act remains on the books (see below for more on that), the rate a cable operator not facing "effective competition" – essentially a null set, legally speaking, since 2017 –charges for the Basic Service Tier (BST) remains subject to regulation. This item, (circulated version available here), however, "will remove from … regulations approximately 27 pages, 11,475 words, 77 rules or requirements, and 8 forms."

The Report and Order deregulates most cable equipment, exempts smaller systems, and declines to extend its rules to commercial establishments. It also modernizes and streamlines those rules that remain in place, primarily to reflect the sunset, over 25 years ago, of tier regulation beyond that of the BST – that is, the tier (1) upon which local broadcast television stations and public, educational, and government access (PEG) channels must be carried, and (2) to which rate regulation in theory still applies.

In practice, of course, given the ubiquitous presence nationwide of "effective competition" from direct broadcast satellite (DBS) operators, telco TV providers, and virtual multichannel video programming distributors (vMVPDs), rate regulation of the BST no longer occurs. As the item notes, the Commission itself is "unaware of any local communities that are actively regulating cable rates at this time."

In a June 5, 2025, post to the FSF Blog, Free State Foundation President Randolph May described this undertaking broadly as "a meaningful regulatory reform accomplishment" and referenced the following language from our comments: "what primarily stands in the way of unbridled, consumer-benefitting competition are ill-fitting rules that hamstring the subset of participants to which they uniquely apply." The Report and Order, the goal of which is to "unleash prosperity through deregulation," is significant step in the right direction.

Speaking of deregulation, according to Law360 (subscription required), earlier this week House Energy and Commerce Committee Chairman Brett Guthrie (R-KY) stated that "'it's time to have a real conversation and update the 1992 Cable Act.'" Consistent with the position for which I (as well as others associated with the Free State Foundation) long have advocated, most recently in "Deregulation Is the Cure for the Video Regulatory Disparity," a June 9 post to the FSF Blog, Chairman Guthrie indicated that he opposes calls to extend legacy MVPD regulation to virtual alternatives: "'I fear that imposing additional regulation on this industry rather than relieving burdens on others would slow down innovation rather than encourage it.'"

The Latest on State Cable Bill Prorating Requirements

There have been two recent developments of note regarding legal challenges to state-level requirements that cable operators prorate customers' last-month bills – obligations that, as I argued in "State Cable Bills Prorating Requirements Clearly Are Preempted," an April 2021 Perspectives from FSF Scholars, constitute a form of rate regulation preempted by the 1984 Cable Act, not an otherwise permissible customer service standard or consumer protection law.

Both Maine and New Jersey require that cable operators – but not any of the countless other distributors of video programming, whether facilities-based (such as the two Direct Broadcast Satellite operators, DIRECTV and DISH Network, or telco TV providers, like Verizon FiOS) or streamed over the Internet (Netflix, Hulu, Amazon Prime Video, Disney+, and so on) – bill canceling customers on a per-day basis during their final month of service.

In "Maine Cable Law, Ignoring Competition, Is 'Unambiguously Preempted'," an October 2020 Perspectives, I reported that the U.S. District Court for the District of Maine had found the Maine statute to be "unambiguously preempted." The Court of Appeals for the First Circuit, however, reversed that decision on January 4, 2022. For more information, please see "First Circuit Wrongly Concludes Maine's Prorated Billing Requirement Is Not Unlawful."

And last week, on January 9, 2023, the U.S. Supreme Court announced that it had denied Charter Communications' petition for certiorari.

New Jersey's "virtually identical" rule likewise, and for similar reasons, was deemed preempted by the Superior Court of New Jersey, Appellate Division, in an October 15, 2021, unpublished opinion. I discussed this decision in "NJ State Court Concurs: Requirement to Prorate Cable Bills Equals Preempted Rate Regulation," a contemporaneous post to the Free State Foundation blog.

The New Jersey Board of Public Utilities and Division of Rate Counsel appealed to the New Jersey Supreme Court, which held oral arguments on Tuesday (subscription required). Should the lower court decision be reversed, this case potentially could make its way to the Supreme Court.

A decision is expected as early as late next month.

Streaming Services Surpass Cable in Total Viewing

Just-released video consumption numbers from Nielsen hammer home a point to which Free State Foundation scholars repeatedly return: streaming is the 800 lb. gorilla in a marketplace distorted by one-sided, outdated regulations that inappropriately hamstring cable operators and other traditional multichannel video programming distributors (MVPDs) – and thereby deny consumers the full benefits of competition.

In "A Tale of Two Trends: Traditional Video Distributors Shrink While Streaming Video Grows," a recent Perspectives from FSF Scholars, I drew a stark contrast between (1) the latest evidence of steady traditional MVPD subscriber losses, and (2) a watershed moment in the battle for eyeballs between streaming, broadcast television, and cable: in June 2022, streaming for the first time surpassed the one-third of total usage threshold.

Nielsen data covering the last three months underscores the zero-sum rivalry between the new and old guards. From June to September, streaming's share climbed an additional 3.2 percent, to 36.9 percent. Over the same period, cable's share fell 1.3 percent, to 33.8 percent. Critically, streaming's share surpassed that of cable in July – and, by September, that gap had grown to 3.1 percent.

The following chart illustrates these recent developments:

As Free State Foundation President Randolph May and Director of Policy Studies and Senior Fellow Seth Cooper argued persuasively in Reply Comments filed in GN Docket No. 22-203:

The legacy video regulatory landscape bears no resemblance to 2022's marketplace in which consumers increasingly favor a dynamic, self-curated mix of subscription streaming services accessed on consumer-owned devices over traditional MVPD services. Thus, the Commission should identify legacy regulation of MVPD services based originally on a lack of competition and eliminate, modify, or recommend congressional repeal of such regulation.

Congress Should Respect Free Speech and Markets for Video Content

On September 2, House Resolution 1329 was introduced, which declares its purpose in "[r]ecognizing the need for greater access to rural and agricultural media programming." One can see the benefit to viewers of being informed about agricultural weather, agribusiness, commodity markets, and Western sports like rodeos. At the same time, it's important that government respects the First Amendment free speech rights of video programming distributors to select content and determine where or how it is presented to their subscribers. A resolution is perhaps a fitting way to commend Western living, but Congress should steer clear of mandating or appearing to direct the programming content choices of video service distributors.  

House Resolution 1329 salutes farmers, ranchers, agricultural productivity that supplies the American people with food, and the importance of agricultural investment to our nation's future. It also calls attention to the potential for rural and agricultural video programing to inform Americans about those issues, including residents in big cities and suburbs. In these the matters the resolution's outlook is worthy of respect.

The House resolution – in agreement with identically-worded Senate Resolution 712, introduced back on July 14 of this year – also decries media consolidation's harmful impact on access to such programming. But that point deserves significant qualification. American consumers have access to more video programming choices and distribution outlets than they did thirty years ago. In the early 1990s, nearly all Americans had only one choice for subscription-based multi-programming video distributor (MVPD) services, a local analog cable provider. Yet in 2022, Americans are served by a local cable provider with expanded programming tier offerings and by two nationwide direct broadcast satellite (DBS) providers. Many Americans also have access to competing former telco MVPD services. Additionally, online digital streaming services are available nationwide, with online video distributor (OVD) subscriptions now outnumbering MVPD subscriptions. And broadcast TV programming, which is now offered via multi-streaming channels and with HD quality, overwhelmingly constitutes a widely available non-subscription viewing option. 

The House resolution recognizes the emergence of competing OVDs. It states that "multichannel video programming distributors and providers of digital and streaming media should make delivery of rural agricultural programming, including agricultural news and western lifestyle content, a priority." Although the sentiment behind the resolution may be commendable, it ought to be remembered that video networks are private property. Any government intervention in the marketplace favoring the carriage or specific placement of one particular channel or program on a cable or other video network risks improperly overriding the editorial rights of cable providers or other video distribution network owners. 

Cable and other video providers' editorial decisions about whether to carry content and how to present it are constitutionally protected free speech. In Turner Broadcasting System, Inc. v. FCC (1994), for instance, the Supreme Court held that cable video programming distributors engage in and transmit speech and therefore receive First Amendment protections. Moreover, in a concurring opinion in the D.C. Circuit's 2013 Comcast v. FCC decision, then-Judge Brett Kavanaugh wrote that "[j]ust as a newspaper exercises editorial discretion over which articles to run, a video programming distributor exercises editorial discretion over which video programming networks to carry and at what level of carriage." 

Moreover, if Congress or the FCC were to adopt a regulation favoring a specific type of video content for carriage on MVPD networks then the regulation would not be content neutral. Any government mandate for prioritizing carriage or ensuring cable basic tier placement for rural and agricultural content – or any other specific type of content – would by definition be content-based and therefore subject to strict scrutiny. It's highly unlikely that a court would find that a program carriage or placement mandate favoring specific video content furthers a compelling government interest and is the least restrictive means to further that interest. 

Video policy ought to be guided by the principle of limited government. That principle should caution us against the risk of public officials unduly influencing the programming content choices of private video networks. Another concern is that government could end up preferring highly objectionable content. Rural and agricultural programming may be all-American and family friendly, but there are myriad programming choices that are neither.

As both chambers of Congress consider resolutions that recognize the value of rural and agricultural video programming, its Members should steer clear of allowing such recognition to turn into any form of requirement for private sector video providers. 

Virtual Video Programming Services Continue to Gain Ground

In "Pixel by Pixel, Video Streaming's Ascension Comes Into Focus," a September 2021 Perspectives from FSF Scholars, I reported that the growth of Internet-based alternatives to traditional, facilities-based multichannel video programming distributors (MVPDs) may be slowing. More recent data, however, indicates that the opposite is true: virtual MVPD (vMVPD) subscriber totals have nearly doubled over the past year. Over the same period, the number of traditional MVPD customers has continued its downward trend.

There is no question that consumers are turning away from legacy video programming offerings and toward the many streaming options available – and that, consequently, both Congress and the FCC need do more to remove outdated regulations that exclusively target facilities-based providers (that is, cable operators, Direct Broadcast Satellite operators, and telco TV providers).

For more on this point, please see "Streaming Continues to Redefine the Video Landscape: It's Past Time to Eliminate Legacy Regulations," a Perspectives I wrote for the Free State Foundation in July 2021.

An evidentiary open question, though, has been to what extent viewers still crave the classic big bundle provided by facilities-based MVPDs: live channels + video on demand + an electronic programming guide + digital video recording capabilities.

The sheer number of subscribers to primarily library-based services like Netflix (214 million), Amazon Prime (over 200 million), Disney+ (118 million), and Hulu (43 million) suggests that preferences are trending away from these types of offerings toward a self-curated collection of more targeted options.

This hypothesis is bolstered by two data points.

One, the number of consumers who obtain service from traditional MVPDs continues to decline. According to the Leichtman Research Group, total subscribers to the top seven cable operators decreased by more than five percent, from 44.3 million to 41.9 million, between Q3 2020 and Q3 2021. Notably, Hulu, number four on the list of top streaming services, now has more subscribers than the top seven cable operators combined.

Two, 49 percent of broadband households subscribe to four or more streaming services.

According to Parks Associates, however, the number of broadband households subscribing to vMPVDs – which replicate the traditional product offered by facilities-based providers but deliver content over a user-provided broadband connection to a consumer-owned streaming device or smart TV – is now "nearly double" what it was just one year ago: 19 percent.

The impressive success enjoyed by vMVPDs – a large category of providers that includes Hulu + Live TV, YouTube TV, Sling TV, Philo, AT&T TV NOW, and fuboTV – reinforces the oft-made case for additional deregulatory action by Congress and the FCC.

NJ State Court Concurs: Requirement to Prorate Cable Bills Equals Preempted Rate Regulation

Last week, a New Jersey state appellate court, wisely siding with two federal district courts, held that requiring cable operators to prorate last-month bills constitutes a form of rate regulation that is preempted by federal law.

Section 623(a)(2) of the 1984 Cable Act unambiguously states that, upon a determination by the FCC that a cable operator is subject to effective competition, "the rates for the provision of cable service by such system shall not be subject to regulation." Section 636(c), meanwhile, expressly preempts any provision of law that is inconsistent with Section 623(a)(2) (as well as with Section 623(a)(1), which states that "[n]o Federal Agency or State may regulate the rates for the provision of cable service except to the extent provided under this section.").

Nevertheless, and as I wrote in an April 2021 Perspectives from FSF Scholars, "State Cable Bills Prorating Requirements Clearly Are Preempted," two states – Maine and New Jersey – have attempted to require cable operators, and cable operators alone, to charge customers for service on a per-day basis.

Fortunately, in both cases a federal district court intervened.

In March 2020, Maine passed Public Law Ch. 657, "An Act To Require a Cable System Operator To Provide a Pro Rata Credit When Service Is Cancelled by a Subscriber." It states that a cable operator "shall grant a subscriber a pro rata credit or rebate for the days of the monthly billing period after the cancellation of service if that subscriber requests cancellation of service 3 or more working days before the end of the monthly billing period."

In an October 2020 opinion, the U.S. District Court of Maine held that obligation to be "unambiguously preempted" by the 1984 Cable Act. Specifically, the court concluded that a mandate to prorate last-month bills effectively requires cable operators to bill on a per-day basis, and therefore is a form of rate regulation preempted by Section 623(a)(1) – not a consumer protection law or customer service standard for which Section 632 creates an exception to the general rule.

For additional information on that decision, please read "Maine Cable Law, Ignoring Competition, Is 'Unambiguously Preempted'," a Perspectives from FSF Scholars published later that same month.

In March 2021, the District Court of New Jersey considered a challenge by Altice to Section 14:18-3.8 of the New Jersey Board of Public Utilities' (BPU) rules, a provision that that court found to be "virtually identical" to Maine Public Law Ch. 657. In an opinion that quoted extensively from the Maine District Court's decision, it not surprisingly reached the identical conclusion.

In addition to filing suit in federal district court, Altice also appealed the cease-and-desist order issued by the New Jersey BPU to the Superior Court of New Jersey, Appellate Division. On October 15, 2021, in an unpublished opinion, that court embraced the reasoning of the New Jersey District Court (and, by extension, the Maine District Court) and invalidated the BPU's cease-and desist order.

Notably, in both of these instances the prorated billing requirement applies exclusively to cable systems. Rival Multichannel Video Programming Distributors (MVPDs), including satellite operators, telco TV providers, and "virtual" MVPDs that distribute content over the Internet, a growing category that includes YouTube TV, Sling TV, and Hulu + Live TV, are free to bill on a monthly basis – a practice that many in fact have embraced.

As such, these court decisions, at the federal and now state levels, don't merely affirm the intent of Congress. They also serve to remove arbitrary barriers that impact only one segment of the video distribution marketplace.

Given the ever-growing prominence of streaming services (Netflix, Hulu, Amazon Prime Video, Disney+, Apple TV+, HBO MAX, and countless others), it is appropriate that regulations premised upon (at best) outdated assumptions be eliminated at every opportunity.

Nielsen: Viewership of Streaming Video Has Surpassed That of Broadcast Television

In a June 11 Perspectives from FSF Scholars, "Streaming Continues to Redefine the Video Landscape: It's Past Time to Eliminate Legacy Regulations," I made the case that the video distribution power center has shifted from traditional, facilities-based providers to those that lead in the online space.

Both streaming platforms, such as Roku and Amazon Fire TV, and streaming services, led by Netflix and Amazon Prime but including Disney+, Hulu, HBO Max, Paramount+, and numerous others, enjoy user totals that far exceed those of traditional, facilities-based multichannel video programming distributors (MVPDs).

As a consequence, outdated rules premised upon marketplace assumptions that in 2021 absolutely do not apply only impede competition.

Just-released data from Nielsen underscores the degree to which streaming is revolutionizing how consumers access video: more people now view streamed content than watch broadcast television.

This, without question, is a watershed moment.

For more from Free State Foundation scholars on the pressing need to deregulate further the video distribution marketplace, please click here, here, here, and here.

Media Bureau Grants Relief from Cable Rate Regulation in Light of Streaming Competition

The FCC's Media Bureau on December 7 adopted and released a Memorandum Opinion and Order exempting Comcast and Cox Communications from local cable rate regulation in 85 Massachusetts communities. That decision once again recognized that the AT&T TV NOW streaming service provides "effective competition" in accordance with the so-called "LEC" test set forth in Section 623(l)(1)(D) of the Communications Act.

Local franchising authorities (LFAs) are permitted to regulate the rate a cable operator charges for the basic service tier in a given area only until the FCC concludes that that cable operator is subject to "effective competition." Subsection (l) of Section 623 defines "effective competition" in a number of ways, one of which is as follows:

a local exchange carrier or its affiliate ... offers video programming services directly to subscribers by any means (other than direct-to-home satellite services) in the franchise area of an unaffiliated cable operator which is providing cable service in that franchise area, but only if the video programming services so offered in that area are comparable to the video programming services provided by the unaffiliated cable operator in that area.

In an October 2019 Memorandum Opinion and Order, the Commission for the first time acknowledged that the AT&T TV NOW service satisfies the four prongs of "LEC" test.

Free State Foundation scholar Seth L. Cooper approvingly anticipated that decision in a Perspectives from FSF Scholars, "FCC Action Would Finally Eliminate Local Cable Rate Regulation," published shortly before the agency acted on the petition filed by Charter Communications. When that item was placed on circulation, FSF President Randolph J. May issued a Media Advisory expressing his approval of that proposed decision. Click here and here for additional commentary.

In a Perspectives from FSF Scholars posted to the Free State Foundation website earlier today, I describe how recent subscriber growth by virtual Multichannel Video Programming Distributors (vMVPDs) provides still more evidence that, in 2020, video distribution unquestionably is defined by robust and full competition, This decision by the Media Bureau to eliminate legacy rate regulation in Massachusetts reflects that reality, but the Commission can and should do more to remove outdated rules and unleash the power of an unfettered competitive marketplace.

FCC Proposal Would Reform Legacy Video Rules for Programming Disputes

At its November 18 public meeting, the FCC will be voting on a proposed rulemaking that would make needed updates and fixes to its legacy rules for video services. The Commission's rulemaking deserves a "yes" vote. The federal regulatory framework for multichannel video programming distributor (MVPD) services has long been outdated. Until Congress updates the law, the Commission should do all it can to remove old unnecessary rules and streamline its procedures to reduce regulatory burdens. The Commission's proposed rulemaking regarding program carriage and other legacy video provisions furthers this important end.  

If adopted, the Commission's rulemaking would, among other things, clarify circumstances that trigger the start of the 1-year the statute of limitations for filing complaints with the Commission in disputes involving program carriage, program access, and good-faith retransmission consent. Also, ALJ decisions regarding such disputes would not take effect until 50 days after their release. And they would be automatically stayed upon the filing of appeals with the Commission, with an informal 180-day shot clock for the Commission to circulate a decision reviewing ALJ decisions in those matters.

For all the advances in video distribution technology and emergence of new video services, much of the MVPD market is still subject to regulatory restrictions that originated in the early 1990s, if not before. While replacement of the old framework awaits, the proposed rulemaking for program carriage and other disputes, part of its Media Modernization Initiative, is a worthwhile reform measure and it ought to be adopted. And the Commission's rulemaking ought to serve as another reminder that legacy regulation of MVPD services makes no sense in the era of Netflix, Hulu, and Disney+ and many other new video programing alternatives. 

FCC Defends its Order on Effective Competition in the Video Services Market

On July 15, the FCC's legal brief was filed with the First Circuit in Massachusetts Department of Telecommunications and Cable v. FCC. The case involves a legal challenge to the Commission's LEC Test Order (2019). In that order, the Commission found that the "LEC Test" for determining whether local areas are subject to "effective competition" in video services can be satisfied by competition to incumbent cable operators from over-the-top (OTT) or online video services offering multi-channel video programming. Specifically, the order found that AT&T's streaming video service, which included 65+ channels, was comparable to Charter Communications' multichannel video programming distributor (MVPD) service. Thus, the order found that "effective competition" existed in the few localities in the U.S. still subject to local cable rate controls.  

The brief for the FCC ably defends the legal basis for the LEC Test Order and for the relief from local cable rate regulation that the Commission granted to Charter in the order. Hopefully, the First Circuit will take a similar view and uphold the order. The LEC Test Order is an important measure that cleared away costly legacy cable regulations that no longer make sense in today's competitive video marketplace, wherein cable MVPDs compete not only with direct broadcast satellite (DBS), but also against OTT services. 

My October 2019 Perspectives from FSF Scholars paper, "FCC Action Would Finally Eliminate Local Cable Rate Regulation," identified four positive results from the LEC Test Order: (1) removal of old rules that don't fit today's competitive video market; (2) establishment of regulatory parity between cable providers and competitors not subject to local rate regulation; (3) removal of burdens on the cable providers' editorial free speech rights; and (4) prevention of local authorities re-regulating cable rates. In an April 2019 blog titled "The Metaphysics of Video Competition," Free State Foundation President Randolph May first wrote about Charter' petition to the FCC for relief from local cable rate regulation in light of competition it faced from AT&T's nationwide streaming MVPD service, then called AT&T NOW. His October 2016 media advisory responding to the Commission's adoption of the LEC Test Order is available here. 

FCC Proposes Leased Access Update, But First Amendment Problem Remains

At its July 16 public meeting, the FCC will vote on a proposed order that would make updates to its commercial leased access rules. The proposed order would bring the rules into closer alignment with actual market values for cable channels and reduce burdens on cable operators. As far as they go, these changes make sense and they ought to be approved by the Commission. If adopted, however, the order would sidestep the glaring First Amendment problems posed by cable leased access regulation. 

Commercial leased access rules require cable operators to lease channel capacity to independent video programmers at government-set rates. Under the proposed order, leased access rates would be set according to a tier-based calculation intended to approximate the actual value of the leased channels. Also, maximum fees that cable operators may charge independent video programmers for leased access would be calculated annually based on contracts in effect the prior year. Apparently, these changes would reduce regulatory burdens on cable operators. Commission deserves credit for proposing these updates to the old rules.

But the First Amendment problem with cable leased access regulation remains. On the one hand, the FCC's proposed order acknowledges that significant changes have taken place in the video marketplace over the several years since the constitutionality of the cable leased access regime was upheld. Those changes put the constitutionality of leased access regulation in doubt. On the other hand, the proposed order agrees that "it is not the role of the Commission to adjudicate in the first instance the constitutionality of leased access requirements that have been mandated by Congress," so it offers no opinion on the First Amendment issue.  

As Free State Foundation President Randolph May and I explained in our July 2019 comments to the FCC in its commercial leased access proceeding, leased access regulation is an unconstitutional "forced speech" mandate. Such regulation infringes on the First Amendment editorial rights of cable operators over what video programming they will carry and how much they can charge for content they may not want to carry. Supposed "bottlenecks" in the distribution pathways for video programming in the late 1980s and early 1990s provided the basis for upholding leased access regulation. Those bottlenecks do not exist in today's competitive video marketplace. Strict scrutiny is now the proper constitutional standard for evaluating cable leased access regulation. But there is no compelling government interest in regulating or limiting the editorial discretion of cable operators to program their services as they wish, and so cable leased access regulation fails strict scrutiny. 

Although the FCC may believe that its limited role prevents it from doing away with leased access regulation, that should in no way inhibit members of Congress or the courts from acting within their own roles to address the glaring First Amendment problem with cable leased access regulation. 

Roundup of Recent FCC Reform Actions

At its October 25 public meeting, the FCC took a number of actions, including a vote to approve its Effective Competition Order. This order was discussed in My Perspectives from FSF Scholars paper, "FCC Action Would Finally Eliminate Local Cable Rate Regulation." Additionally, the order is the subject of Free State Foundation President Randolph May's Media Advisory from October 4. Given the choice of video services consumers have today, the Commission's grant of relief from the last remains of early 90s-era local cable rate regulation is welcome.

Also at its October 25 public meeting, the Commission voted to approve a declaratory ruling that provides parity and prohibits discriminatory fees on VoIP services. My October 17 blog post discussed that ruling.  

At its September 26 public meeting, the Commission approved an order eliminating forms of access arbitrage involving the intercarrier compensation system. Prior blog posts called attention to that order. 

Online Video Offerings from INCOMPAS/DISH TV Bolster the Case Against Local Cable Rate Controls

On October 15, it was reported that INCOMPAS and DISH NETWORK have entered into a Retail Partner Program agreement to provide nationwide video service offerings, including video services comparable to cable multi-channel video programming distributor (MVPD) services. According to reports, INCOMPAS members will resell DISH TV's video services, making them available via broadband connections to INCOMPAS subscribers. This market development demonstrates the competitiveness of the video market and it bolsters the case against outdated local cable rate controls. 

My October 11 Perspectives from FSF Scholars paper, "FCC Action Would Finally Eliminate Local Cable Rate Regulation," explained why the Commission should adopt its proposed LEC "effective competition" order. Local rate regulation of basic cable tier services and equipment shouldn't exist in today's competitive video marketplace, which includes nationwide direct broadcast satellite (DBS) services and over-the-top (OTT) online video services. Based on the Commissions' "LEC test," the proposed order would eliminate local cable rate controls in the few geographic areas where they are still enforced. 

The Commission's proposed order is scheduled for a vote at its public meeting on October 25. The order is prompted by Charter Communications' petition requesting the Commission to find that AT&T TV NOW's nationwide offering of streaming video service via broadband Internet facilities is comparable to cable services and provides effective competition to cable systems in certain Massachusetts and Hawaii localities. My Perspectives paper sets forth some positive results that would obtain from the Commission's adoption of its proposal. 

The Commission's "LEC test" requirements aside, the INCOMPAS/DISH TV announcement goes to show that today's video marketplace offers consumers competitive choices. Legacy cable regulation based on early 1990s analog- and VCR-era market assumptions, including local cable rate regulation, provide no discernable benefit to consumers in 2019's video landscape. Local cable rate controls ought to be scrapped.

Modern TV Act Would Remove Old Rules, Bring Video Policy Up to Date

The Modern Television Act of 2019 is promising new legislation that would bring federal video policy into greater alignment with 21st century market realities. Introduced in the U.S. House of Representatives on July 25 by Reps. Steve Scalise and Anna Eshoo, the Modern TV Act would repeal or at least reduce a number of old legacy broadcast TV and cable regulations that were based on a now-obsolete picture of the video market. The Modern TV Act is a bipartisan compromise measure that the 116th Congress ought to take up in earnest this year.

Among its provisions, the Modern TV Act would eliminate distant signal importation prohibitions, syndicated exclusivity rules, network non-duplication rules, authority to regulate local cable rates under Section 623, and cable leased access rules. Most of those rules involve dealings between market participants that own video programming and video service providers that distribute programming to retail subscribers. Once those rules are eliminated, video programmers and video service providers can, in most instances, simply negotiate contracts to address which programming receives carriage in which local TV markets. The Modern TV Act also would eliminate, or at least largely eliminate, cable and satellite compulsory licenses for carrying copyrighted video programming, thereby allowing parties to negotiate copyright royalties.

The Modern TV Act moves firmly in the direction of establishing a federal video policy that matches the competitive conditions of today's innovative video marketplace. For several years, Free State Foundation scholars have called attention to the fact that legacy regulations of broadcast, cable, and direct broadcast satellite (DBS) TV services are based largely on early 1990s, or even earlier, assumptions about the analog and VCR-era video market. But those regulations are now hopelessly out of touch with today's marketplace. 

The days are long gone when the video service choices of most Americans were largely limited to over-the-air (OTA) broadcast TV or a single cable operator. Today, most Americans can choose between a cable provider and two DBS providers, while many also have access to a former "telco" video services provider. Unlike the days when cable operators had a 91% market share among pay-TV services, at year's-end 2017, cable served 55.2% of multi-channel video programming distributor (MVPD) subscribers, DBS served nearly 33.5%, and "telco MVPDs" serviced 11.3%. Meanwhile, in 2018 antenna use for OTA broadcast TV reached its highest level since 2005, with 31% of U.S. households having an antenna on at least one TV. Online video distributor (OVD) services have also dramatically transformed the video market. In early 2019, Netflix had over 60 million U.S. subscribers to its streaming video service, while Amazon Prime and Hulu had 101 million and 28 million. Widespread adoption of OVD services has been recognized as an important cause of annual MVPD subscriber losses going back to 2013. Total MVPD subscriptions were down to 94 million at year's-end 2017, and sharp declines have been reported for 2018 and 2019.

Legacy regulations geared toward last century's outdated technologies and less competitive, pre-Internet market conditions confer no benefit on consumers today. Instead, their continuation saddles broadcast, cable, and DBS TV service providers with burdensome compliance costs as well as restrictions that can inhibit their ability to compete with each other and with online competitors. 

Furthermore, as Free State Foundation President Randolph May and I have explained in numerous writings, many legacy video regulations, including leased access rules, amount to forced access mandates. Requiring video service providers to carry video programming not of their own choosing violates their First Amendment free speech rights. The Modern TV Act's proposed repeal of leased access rules would better respect the free speech rights of cable providers. 

To help bring federal video policy up to date, the 116th Congress should give prompt consideration to the Modern TV Act.

FCC Proposes to Keep Localities from Exceeding Taxing and Regulatory Limits

On August 1, the FCC will hold a vote on its proposed order to clarify the legal limits on the power of states and local franchising authorities (LFAs) to impose fees on cable operators and to regulate non-cable services. The Commission deserves credit for its proposed order, which is solidly backed by the Communications Act. The Commission's action will keep states and LFAs from weighing down cable operators with multiple, unjustified taxes and charges. And its proposed order also will ensure that broadband Internet services and other information services will be free from state and local state regulatory restrictions. 

To briefly recap, Section 621(a)(1) of the Communications Act recognizes that LFAs may require cable TV service operators to obtain franchises, but subject to limits.Section 622(b), for instance, caps franchise fees on cable operators at 5% of its cable service gross revenues during any 12-month period. And under Section 624(b), LFAs "may not ... establish requirements for video programming or other information services." However, some LFAs have imposed costs that appear to exceed those statutory limits, potentially diverting cable operator resources away from investment in next-generation broadband Internet services. And some uncertainty surrounded whether LFAs might exceed their cable franchising authority to regulate broadband Internet services.   

The Commission's proposed order implements the statutory limits on LFAs in four key respects:

1. By including "in-kind" contributions charged by LFAs in exchange for video franchises within the 5% cap on franchise fees;
2. By concluding that the regulatory jurisdiction of LFAs over video franchising cannot be used to regulate most non-cable services provided over "mixed-use" cable networks, including broadband Internet access services;
3. By preempting any LFA-imposed fees or taxes on cable operators that exceed the Section 622(b) cap as well as any franchising requirements for providing non-cable services through cable networks; and
4. By applying limits regarding LFAactions at the state level and to state regulatory requirements on local franchising.

Free State Foundation President Randolph May and I have previously written about the Commission's Section 621 proceeding and its proposed order in reply comments submitted to the FCC, which the agency cites in its draft order, and also in a pair of blog posts. We urged the Commission to shore up its "in-kind" contribution and "mixed-use" rules and to expressly apply limits on LFAs to the state-level franchising authorities. 

The Commission's proposed Section 621 order is important, and it is commendable. It is faithful to the law, it will keep LFA and state-level franchising actions within proper boundaries, and it's hospitable to encouraging investment and deployment of next-generation broadband services. 

FCC Gives the First Amendment Its Due in Cable Leased Access Proposal

On June 6, the FCC will vote on a proposed order and rulemaking to modify its analog-era leased access rules, including its dispute procedures and rate formula. To its credit, the Commission factors First Amendment free speech protections into its proposed modifications of its leased access rules. Indeed, the Commission expressly recognizes that leased access requirements, which restrict the editorial and speech rights of cable providers, are constitutionally on shaky ground. This is an important point that Free State Foundation scholars have been making for several years. 

As I wrote in "FCC Over-Regulation of Video Services Undermines Free Speech, a 2012 Perspectives from FSF Scholars paper:

The Supreme Court's First Amendment jurisprudence holds that content-based restrictions are presumptively unconstitutional and that government is generally prohibited from telling speakers what they must say. But many of the FCC's regulations applicable to video service providers include access or forced sharing mandates. Some agency restrictions are even based on speech content. These continuing legacy regulations governing video services infringe upon the editorial choices of MVPDs. Court precedents recognize that MVPDs are entitled to First Amendment protection. The logic of the Court's relevant First Amendment decisions therefore renders significant aspects of current federal regulation of MVPDs' free speech constitutionally suspect. …The FCC's leased access regulations [] pose First Amendment problems. Under the statute, MVPDs lose "editorial control over any video programming" on the leased channel capacity. Rate controls constitute another facet of leased access regulations, which are another variety of forced access regulation. MVPDs are subject to FCC-set maximum amounts that independent video programmers can be charged for leasing channel capacity.  

Previously, legacy cable regulations, including leased access rules, were upheld under the intermediate scrutiny standard because of perceived cable video programming distribution bottlenecks in the early 1990s. Under intermediate scrutiny, speech of cable operators may be restricted so long as the regulation furthers an important government interest by means substantially related to further that interest. 

But by the time of my May 2011 blog post on ending legacy cable regulation we already were long past the days when cable operators possessed a 91% or more nationwide market share. And we already were long past the days when consumers' only option for subscription video services was a single local cable provider. Data from the Commission's Communications Marketplace Report (2018) reflect a video services ecosystem featuring competitive cable, direct broadcast satellite (DBS), and online platforms for video programmers to distribute content to consumers. As I summed things up in a February 2019 Perspectives paper:

For video services, the report found that at the end of 2017 all or nearly all U.S. consumers have access to three competing multi-channel video programming distributors (MVPDs). Some consumers had access to four. Furthermore, MVPDs lost subscribers to competing broadcast TV and – especially – to online video distributor (OVD) services. Whereas MVPDs lost 3.6 million video subscribers in 2017, a drop to 94 million, 16.6 million TV households (13.9%) relied exclusively on over-the-air (OTA) TV broadcast signals, up from 15.7 million TV households (13.2%) in 2017. Top three OVDs Amazon Prime, Netflix, and Hulu exceeded 125 million subscriptions in 2017, up from about 103 million in 2016. And "Virtual MVPDs" such as SlingTV and DIRECTV NOW climbed from 2.2 million subscribers to 4.8 million. 

In a June 2018 blog post titled "Improving the FCC's Cable Leased Access Proposal," I again pointed out that the old rationale for leased access rules no longer holds up. Therein I wrote that "the Commission should expressly identify the First Amendment problem posed by the leased access requirements in today’s competitive video market." Furthermore, I wrote: "If the Commission believes it is powerless to eliminate completely the leased access requirements, it should ameliorate the First Amendment problem," perhaps by predicating enforcement of its leased access rules on findings of market power.

Commendably, the Commission's proposed order and rulemaking states: "We agree that dramatic changes in technology and the marketplace for the distribution of programming cast substantial doubt on the constitutional foundation for our leased access rules." It goes on to say: 

[W]e now find that the First Amendment concerns raised by commenters provide additional reason to interpret the statutory obligations of Section 612 in a manner that reduces burdens on the speech of cable operators. We do so here by, among other things, eliminating the Commission rule requiring that cable operators make leased access available on a part-time basis.

The Commission's proposed order would vacate faulty 2008 rules that were never implemented and modify pre-2008 procedural requirements. And its proposed rulemaking would modify its leased access rate formula. Also, the Commission again asks if leased access requirements continue to withstand First Amendment scrutiny, and what discretion the Commission has to reduce the burdens on speech posed by those rules. By this admirable approach, the FCC rightly gives due respect to the First Amendment free speech interests that are burdened by leased access rules. 

The FCC Should Curb Cap-Busting Fees Levied on Cable Operators

The FCC is considering a proposal to clarify the legal limits on the amount of local franchising fees that can be charged to cable operators. Some local governments have evaded the limits by charging fees for access to public rights-of-way on top of the five percent franchise fee they are permitted to charge cable operators.

The Commission should stop such wrongful duplication of fees – which ultimately redound to the detriment of residential and business consumers in the locality.

The Commission should declare that rights-of-way fees are within the scope of the Cable Act's five percent cap on franchising fees that may be imposed on cable operators. This is important because cable operators are also broadband Internet service providers. Limiting excessive cable franchise fees will free up financial resources for investment in deployment of next-generation networks. 

Section 621 of the Cable Act recognizes state or local franchising authorities (LFAs) may charge cable operators a franchising fee for constructing and operating a cable system. But Section 621 also includes limits that state and LFAs must follow. The statute caps the franchising fee at five percent of the cable operator's annual gross revenue. (Prior blog posts as well as the Free State Foundation's reply comments in the cable LFA reform proceeding explain why the Commission should adopt its proposed "mixed-use" and "in-kind" contribution rules.) 

In addition to adopting its proposed rules clarifying Section 621, the Commission should ensure that LFAs do not stack public rights-of-way fees on top of five percent franchising fees, thereby evading the statutory cap. Inherent in the concept of cable franchises is the authority to access public rights-of-way for distributing video content to subscribers within franchise territories. This is evident from the text of Section 621(a)(2): "Any franchise shall be construed to authorize the construction of a cable system over public rights-of-way, and through easements, which is within the area to be served by the cable system and which have been dedicated for compatible uses" (emphasis added). 

To be sure, states and local governments possess authority to charge fees or taxes on service providers that access public rights-of-ways. And the Cable Act Section 622(g)(2)(A) excludes from the definition of a "franchise fee" "any tax, fee, or assessment of general applicability." But the Cable Act recognizes broad franchising authority and the exceptions should be construed narrowly – particularly when it would avoid an absurd result such as duplications of fees. There is an overlap between cable franchise fees and public rights-of-way fees. An April 19 ex parte filing by NCTA, for example, cites California's simultaneous taxing of cable operators right to access public rights-of-way and imposing of five percent franchise fees for that same right. States and LFAs ought to be prohibited from imposing two or more sets of fees, however they denominate the ways, as a means of evading the franchise fee limits set by Congress. 

The Commission should declare that fees or taxes for public rights-of-way access by cable operators must be included within the scope of the total franchise fee amount – and therefore subject to the five percent statutory cap. This commonsense interpretation of Section 621 would prevent the statutory cap on franchise fees from being undermined. 

The Commission previously has highlighted its actions "reducing regulatory barriers to the deployment of wireline and wireless infrastructure." Fees that exceed the statutory cap constitute a regulatory barrier to broadband infrastructure deployment. If the Commission curbs duplicate fee charges, this will allow cable operators to use the freed-up funds for deployment of next-generation broadband networks. 

The FCC Should Limit Local Franchise Fees to Remove Investment Obstacles

The rule of law applies just as much to government as it does to citizens and corporations. The FCC is considering a proposal to hold local governments accountable to the legal limits on fees they can charge to cable TV providers. Under the Commission's proposal, in-kind payments frequently demanded by local governments would be subject to the statutory cap on cable provider franchise fees. This would ensure that local governments do not evade Congress's intent by demanding in-kind payments instead of cash. 

The Commission should follow through with its proposal. If adopted, local governments would still have control over whether they wish to receive cash, in-kind payments, or a mix of the two. But consistent strict application of Congress's cap will help avoid diversions of cable provider capital resources that would harm investment in next-generation networks and even lead to higher consumer prices.

Section 621 of the Communications Act recognizes local franchising authorities (LFAs) may impose certain requirements on local cable TV providers. But the law also puts limits on LFAs. Section 622(b) caps fee amounts that LFAs may charge a cable provider at 5% of the provider's gross revenues from providing cable TV services during any one-year period. Historically, some LFAs have required cable providers to deliver free cable services or other amenities as conditions for receiving or renewing video franchises. When added to required cash payments, in-kind costs can exceed 5% of the provider's gross revenues. In this way LFAs thwart the statutory cap by: (1) requiring cash payments up to the 5% threshold; and then (2) requiring in-kind payments that LFAs deem to be outside the cap's purview. The Commission's proposal would prevent such abuse. 

Free State Foundation President Randolph May and I filed reply comments in support of the Commission's proposal. And I also pointed out the proposal's merits in a prior blog post. Not surprisingly, local governments and their lobbyists have fiercely resisted including in-kind payments under Section 622(b)'s cap on franchise fees. But the Commission's proposed rule for in-kind contributions is fully in line with Congress's intent in placing limits on how much LFAs can charge for video franchises. The proposal would ensure that congressional policy is applied as intended. 

Importantly, the Commission's proposal would not interfere with LFA decisionmaking over whether or not to receive in-kind payments. LFAs typically negotiate with cable providers over terms for awarding or renewing video franchises. Under the proposal, LFAs can continue to negotiate over and receive in-kind payments, including delivery of cable TV services to city offices, community centers, and the like. Thus, LFAs would remain free to decide if they wish to receive cash payments, in-kind payments, or some mix of both. Also, the Commission's proposal would exclude certain expenses required by LFAs from the 5% cap, like capital costs for public, educational, and government (PEG) channel access.

Furthermore, by ensuring that statutory limits on franchise payments are followed consistently, the Commission's in-kind proposal will help avoid harm to investment and deployment of next-generation networks. Cable providers are also broadband Internet service providers. Federal policy rightly favors acceleration of future investment and deployment of next-generation high-speed broadband and Wi-Fi networks. But excessive video franchising fees reduce returns on investment and disincentivize future investment that could be better spent deploying broadband access to all Americans. And when LFAs charge cash and in-kind payments for video franchises that are excessive, aside from the depressive effect on investment it's important to remember at least some of those costs will be passed on to consumers.

The Commission should adopt its proposal to hold local governments accountable and ensure that they follow the law.